6 min read

2022 Year in Review and 2023 Outlook

Putting 2022 Into Perspective

Unless you've been living under a rock, it's fairly obvious to note that 2022 was a dismal year for markets and investors.


Supply shortages.


Interest rate hikes.

Lofty valuations.

A bear market in stocks.

A historic sell-off in bonds.

The brutal tanking of Big Tech.

The collapse of cryptocurrencies.

The worst market for raising capital through IPOs in 30 years.

A still lingering pandemic.

At least I went another year in China without testing positive for whatever variant is currently in fashion.

Now, you know it's a bad sign of the times when a virtual yacht sold in the metaverse of an online game for $650,000, and a digital Gucci handbag sold for $4,000, in the metaverse (more than the real one).

Talk about lofty valuations.

After more than a decade of mostly positive years and accommodative central bank policy, the world battled inflation amid an oil-price shock and the Russia-Ukraine war, which led the Fed (and other central banks) to an unprecedented series of interest-rate increases. That's the long and short of it.

For a brief period during Q4 it looked like help was on the way for investors after a tumultuous first three quarters, but by the end, relief over a potential slowing in Federal Reserve interest rate hikes was replaced by concerns that the economy was too strong to allow inflation to come down significantly and, at the same time, that a recession looks increasingly likely in 2023.

So, here we are.

In 2022, the S&P 500 was down around 20%. The Nasdaq down around 34%. The Dow fell under 10%, protected by resilient value stocks in the index.

It was the worst year for the stock market since 2008, with volatility to match: The S&P 500 saw 46 daily moves of 2% or more in either direction, the most since the 2008-09 financial crisis. Traders of volatility have certainly been vindicated.

European stocks posted their worst annual performance since 2018. Emerging markets declined more than 20%. The MSCI All-Country World Index had its worst year since the global financial crisis in 2008. Basically, investors have been battered, unless of course you invested solely in commodities or Latin American or Turkish equities, but who does that?

For bond markets, rising rates have a knock-on effect, where yields, which move inversely to prices, have soared. The yield on the benchmark 10-year U.S. Treasury note began the year at 1.5% and peaked above 4.2% in October. It was the worst year for bond holdings in a generation, making investors question, again, the wisdom of a traditional 60/40 portfolio.

It is easy to say, with hindsight, that most of the events that defined this year came straight out of macroeconomic history books. The lesson learnt is that valuations matter, inflation can rise, interest rates can go up, and you can lose money some years.

Where do we go from here?

The only question heading into 2023 is probably: has the market bottomed yet? Whilst I can't answer that, there are some things to look out for.

The focus now falls largely on whether the Federal Reserve will pull off its goal of engineering a "soft landing," or bringing inflation under control without causing a recession. We are entering 2023 with persistent uncertainty and it could be a bumpy ride, at least for the first few months. It looks like the bear market cycle remains in tact for the time being.

Weaker economic trends will likely form heading into 2023 as the Fed battles inflation, but a mild recession may help set stocks up for a better second half of the year. However, investors have a while to wait until the Fed’s next monetary policy decision on the 1st February. Until then, technical indicators and market data do little to inspire confidence.

Global equity markets look likely to face a global recession in 2023, which appears to have already begun in the final quarter of 2022. The severity of the recession will depend, to a significant degree, on what happens in China.


Developments in China then are likely to be a major moving part into January. The government has done a 180 on its lockdown policies that it clung on to for three years and that disrupted global supply chains and diminished growth. While the Covid restrictions that limited economic activity have largely been dismantled, the current Covid wave and the attempts of the population to avoid being infected are now a significant new drag on the economy.

Time will tell how the country will now deal with what looks like the biggest outbreak the world has ever seen. So far, state media seem to be telling people to fend for themselves.

Governments around the world are questioning Covid data coming out of China. At a dinner with 15 people last week, I was the only person at the table that had not contracted the virus in the previous two weeks. Not a scientific sample, but it paints a picture of how bad it is and the pressure China will be under as Chinese New Year approaches and cases peak. The streets are rather quiet as people are too scared to go out. China will soon have to admit that thousands are dying each week and infections are off the charts.

So, we are yet to see pent-up consumer demand go wild.

On the bright side, it looks like China is laying the groundwork for a pick-up in the economy. Plans to lighten quarantine restrictions for overseas travelers should boost the tourism industry, and get high-spending Chinese holiday makers hopping around the world again (if they can get out of bed). The government's business-supporting policy plans and economy-boosting rate cuts point to a comeback, as long as it can get a grip on this new outbreak. Macro policy stimulus is likely to be front-loaded to the first half, setting the stage for stronger economic reopening in the second half which hopefully fuels global growth.

Worst case, a new variant is identified that exhibits more severe symptoms. Then we're probably back to square one.

While the short-term outlook remains uncertain, the macroeconomic challenges are likely to abate at some point in 2023. It is likely that we will see inflation and interest rates peak and supply side constraints reduce. As always, it's critical to take a longer-term view. We've been here before, and we'll be here again.

Take this with a pinch of salt, but the following is a chart from an informal Bloomberg survey of 134 fund managers that incorporates the views of major investors including BlackRock and Goldman Sachs:

As I've noted before, the big dogs have a habit of getting forecasts wildly wrong. However, for further reassurance, consecutive down years are rare for US stocks. Since 1928, the S&P 500 has only fallen for two straight years on four occasions: The Great Depression, World War II, the 1970s oil crisis and the bursting of the dot-com bubble at the start of this century. Although, when they have occurred, history shows that they have been particularly unpleasant, and deeper than the first year drops, with an average decline of 24%.

I don’t know what’s going to happen to stocks or bonds this year. The fact that both were down big last year could mean that 2023 will be a good one for financial markets. Markets also tend to bottom before a recession starts.

Short-term returns are promised to no one.

Most of the time the markets do well.

But bad things happens too. Market volatility is a feature, not a bug.

Is now a good time to start investing for the long term? Absolutely. If you can stomach the volatility, you will be well rewarded.